Yarra says Carlyle, PEP $3.8b tilt for Link too cheap

The Link board on Monday told shareholders to take no action after it received a “conditional, non-binding indicative proposal from a consortium comprising Pacific Equity Partners, Carlyle Group and their affiliates” through a scheme of arrangement proposal.

It also represents a back-to-the-future moment for PEP, which owned Link for a decade before floating it onto the ASX in 2015 at a share price of $6.37.

The $5.20 per share proposal gives an enterprise value of $3.8 billion to Link, when equity, debt and a pending acquisition of Irish group Pepper Servicing worth $266 million, which is still to be settled, are all taken into account.

Carlyle and PEP have secured a commitment from Link’s largest shareholder, Perpetual, to accept any offer of $5.20 a share or more.

Perpetual owns 9.65 per cent of the company. Carlyle and PEP said in a letter to Link’s chairman Michael Carapiet and independent director Glen Boreham they “believe the offer is full and fair and in the best interests of shareholders”.

The P-E consortium said the $5.20 price was at a 30 per cent premium to Link’s closing price on October 9 and at a 34.5 per cent premium to the 10-day volume weighted average price. Link shares jumped in early trading by 23 per cent and by the close on Monday were up 25 per cent to $4.99.

But Perpetual’s views on valuation are in contrast to the second-largest shareholder Yarra Capital Management, which owns 6.8 per cent of Link.

Dion Hershan, head of equities at Yarra Capital, said his initial view was that the proposal didn’t put a high-enough value on the company, which had been trading at above $6 per share in February before the pandemic hit.

“At an initial glance it doesn’t look like a compelling offer,” Mr Hershan said.

Mr Hershan said there were two distinct parts of Link, with PEXA the big growth engine and the traditional core business of investor services, share registries and superannuation services having a tougher time.

But the traditional core business was in a solid position to improve its fortunes.

“There’s a good foundation to rebound,” Mr Hershan said.

Mr Hershan said the economic downturn generally meant it was a time when many companies across different industries would start receiving buyout proposals.

“We’re at a point in the cycle where opportunistic bids arise,” he said. Mr Hershan also said that Yarra Capital had ”thought for some time” there was likely to be moves to try to separate out PEXA from the rest of Link.

A letter to the P-E consortium dated October 9 and signed by Perpetual’s head of equities Paul Skamvougeras in support of the buyout proposal gives a timeframe of six months for a deal to be done. “This letter will cease to have any effect six months after its date, or earlier if you decide not to pursue your proposal,” Mr Skamvougeras said.

PEXA enables buyers and sellers of real estate to settle transactions electronically. In its early days it was backed by several state governments in Australia and the major banks. It was headed for a likely sharemarket float before Link snapped up the 44 per cent stake in 2018.

A letter sent by Carlyle and PEP to the Link board outlines that it is prepared to consider options to allow shareholders to maintain an exposure to PEXA.

“In addition, recognising shareholders’ desire to retain exposure to PEXA and the business, we are prepared to work with the Company to offer a scrip alternative to allow Link shareholders to retain their pro rata exposure to PEXA,” they said. There could also be an opportunity to rollover existing shares alongside the P-E consortium subject to a cap to be agreed.

The P-E consortium isn’t putting any restrictions on Link fielding overtures from any bidding rivals.

“No lockup or arrangement has been sought that would limit the opportunity for the Company to seek a superior alternative proposal and the Consortium expects to be able to complete its due diligence within four to six weeks, subject to information availability,” they said.

Carlyle Group also owns Australia’s second-largest wine company, Accolade Wines, which makes brands including Hardys, Banrock Station and Grant Burge. Carlyle and PEP also own pharmaceuticals group iNova.

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